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Harmony Gold
Precious Metals  
17 August 2017

Harmony Gold reports 35% increase in headline earnings; declares dividend

Dual-listed Harmony Gold has secured cash margins through a successful hedging strategy, realising gains of R1 747 million.

Harmony Gold: Key features year-on-year

  • Harmony Gold achieved a milestone fatality free quarter achieved during the June 2017 quarter; annual fatality rates improved
  • Met production guidance for a second consecutive year; underground grade increased for fifth consecutive year to 5.07g/t
  • 35% increase in headline earnings per share (HEPS) of 298 SA cents
  • 18% reduction in net debt to R887 million
  • Growing ounces – acquired full ownership of Hidden Valley – stages 5 and 6 investment on track
  • Sustainable and inclusive solutions sought to address silicosis claims
  • A final dividend declaration for the financial year of 35 SA cents

“Production is safer and more predictable, grade management is disciplined, production delivery exceeds guidance, operations are generating operational free cash flow and the hedging strategy secures cash margins,” states Harmony Gold CEO, Peter Steenkamp.

“Combined with Harmony Gold’s low net debt compared to peers and its excellent growth opportunities, we continue to have a strong investment case,” he continues.

“Our priorities are to grow our ounces and to pay dividends from profits.”

Focused exploration targets, unlocking the value of Golpu and identifying value accretive acquisitions remain vital in improving the quality of Harmony Gold’s assets, driving down costs and achieving its aspiration of being a 1.5 Moz producer in financial year 2019.

In FY17 Harmony Gold obtained 100% ownership in Hidden Valley (180 000 ozpa) and commenced with its Central Plant reclamation project (15 000 ozpa).

Harmony Gold

Cash margins through hedging (R/KG)

Harmony Gold: Safety

Harmony Gold reported five fatalities in FY17, evidence that it has made progress in creating a safe work environment but highlighting that it needs to do even more.

Harmony has a comprehensive safety risk management approach that encompasses:

  • understanding behaviours and attitudes in order to drive safety compliance
  • a proactive focus
  • the application of preventative controls; and
  • creating a culture of continuous learning and genuine care.

Two Harmony Gold operations recorded exceptional safety results. Tshepong achieved 3 million fatality-free shifts (FFS) on 31 March 2017 and Doornkop achieved 2 million FFS on 17 December 2016.

Harmony Gold: year-on-year operational results

Harmony Gold’s total gold production for FY17 increased by 181 kilograms to 33 836 kilograms, compared to 33 655 kilograms in FY16.

The following operations increased their gold production year on year:

  • Hidden Valley:Gold production increased by 31% due to obtaining full ownership of the mine at the end of October 2016. The investment in Hidden Valley supports free cash flow generation and is strengthened by an experienced Papua New Guinean management team and stable workforce. The stage 5 and 6 cutbacks are on track and the four-month plant shutdown in the first half of FY18 will assist the ramp-up in production by the end of FY18
  • Kusasalethu: The mine showed a notable improvement in gold produced, and delivered a turnaround performance in FY17 following the decision to shorten the life of mine and focus on higher grade areas. Production increased by 14%, with a 25% increase in underground recovered grade to 7.24g/t
  • Masimong: Gold production increased by 4%, due to a 6% increase in recovered grade to 3.97g/t
  • Kalgold: Gold production increased by 9% as a result of a 7% increase in grade to 0.80g/t and a 2% increase in tons milled
  • Phoenix: A 10% increase in the recovered grade and a 4% increase in tons processed resulted in a 14% increase in gold production year on year in FY17.
Harmony Gold

Harmony Gold balance sheet

The following operations reported lower gold production for the year:

  • Target 1: Production was hampered by unfavourable mining conditions in the higher grade areas, with underground recovered grade 22% lower year on year at 3.58g/t and gold production 21% lower
  • Bambanani: Gold production decreased by 9%, as a result of an 8% decrease in underground recovered grade to 11.90g/t
  • Tshepong: Gold production decreased by 4% due to a 6% decrease in tons milled, whilst the underground recovered grade improved by 2% to 4.69g/t; and
  • Unisel: Production decreased by 6% as a result of a 7% decrease in tons milled during FY17. Recovered grade remained more or less steady. Development will focus on higher grade areas in the shaft pillar during FY18.

Harmony Gold cash operating cost increased by 11% or R1.430 billion in FY17, mainly due to increases in labour costs (annual increases and bonuses), inflationary increases in consumables and contractors for the South African operations, as well as the inclusion of 100% of Hidden Valley’s costs from November 2016.

Production profit for FY17 decreased by 13% to R4.452 billion when compared to the R5.084 billion recorded in FY16. This was mainly due to an 11% increase in cash operating cost in rand terms.

Overall, all-in sustaining costs increased by 10% in FY17 to R516 687/kg, compared to R467 611/kg in FY16.

Preventative maintenance was conducted at many of the South African operations in order to improve asset management and performance, which has resulted in a 36% reduction in engineering stoppages during FY17 and will benefit production performance in the future.

Capital expenditure for FY17 increased by 68% to R3.686 billion, of which R1.335 billion was spent at Hidden Valley. Capital expenditure for South African operations increased by 13% or R276 million, which includes R156 million spent on the Central Plant reclamation project.

Harmony Gold: Silicosis class action

As a consequence of the progress in the negotiations to settle the silicosis and tuberculosis class action and the ability to determine a possible settlement amount for the industry working group, a provision has been raised at 30 June 2017.

The provision of R917 million before tax is Harmony Gold’s best estimate of its portion of the potential contribution to the Legacy Fund. This is charged to other operating expenses and reduced headline earnings.

Harmony Gold: Tshepong / Phakisa integration

The close proximity of the Tshepong and Phakisa mines provides an opportunity to optimise existing infrastructure of each operation.

In the short-term, additional volumes from Phakisa will be hoisted from Tshepong.

Harmony Gold: Golpu

The Wafi-Golpu Joint Venture parties continued to progress activity in line with the forward work plan previously communicated, including engagement with the Papua New Guinea government on the application for a Special Mining Lease (SML) for the Wafi-Golpu project.

The current study work is focused on assessing:

  • self-generation power supply options
  • reassessment of block cave levels and increased mining rates due to increased knowledge obtained from further drilling undertaken during the year; and
  • deep sea tailings placement options to compare with terrestrial tailings storage options

The Joint Venture parties are targeting a complete update of the feasibility study by the end of March 2018. The focus of this work is to further optimise the business case and confirm any amendments necessary to the supporting documents for the SML application.

Timing of first production is dependent on the updated study outcomes and the granting of the SML.

Harmony Gold: Kili Teke

The Kili Teke copper-gold deposit is 100% owned by Harmony Gold and represents the first Greenfield porphyry copper gold discovery in Papua New Guinea since the Golpu copper gold deposit, which was identified in 1990 and then materially expanded some 20 years later in 2010.

Harmony Gold’s exploration team has played an integral role in both discoveries.

Kili Teke is a prolific complex with multiple mineralised intrusive events. Field work at the Kili Teke deposit has been scaled back in order to fully model the drilling results, and undertake pre-concept study work to inform the next phase of follow-up drilling.

Feature image credit: Mining Review Africa

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